Are you, a friend, or a family member struggling with student loans? Currently, there is about $945 billion in outstanding student loan debt in the U.S. That’s more than the total current national credit card debt. The amount some young adults have saddled themselves with is staggering; a staff member in our office graduated from college last summer and just started a repayment schedule of approximately $550 per month for the next ten years. But that’s small potatoes compared to the amount I read about in the Ft. Myers News-Press while I was vacationing in Florida last week; one graduating student reported that her loan re-payment is $1450 per month!!
Recent statistics may appear startling to you if you haven’t had anyone close to you attend college for a while. But statistics show the following:
• 67% of students take out federal student loans
• The average federal loan balance is $23,186
• Master’s degree students accrue an additional $25,000, Ph.D. students $52,000, and professional students (such as medical and law school) an additional $79,836!!
Those numbers do not include the $158 billion in private student loans that were, for example, borrowed from family members or bills that were put on credit cards.
The two primary sources of money students borrow come from the federal government and are called Direct Loans. They are issued to students through their school or university. The first type of loan is called a Stafford Loan. It is either subsidized or unsubsidized. Subsidized loans are given to students based on financial need and the interest is deferred until they begin repayment (typically after graduation or the student withdrawing from school). Students who receive an unsubsidized loan accrue interest from the day they take out the loan; and payments are made even while the student is still attending school.
PLUS loans are loans that parents can take out for their children and are unsubsidized. Payments (principal and interest) will be due while the student is still attending school.
If a parent or student is having trouble making their student loan payment, they should use the same care and procedure they would use for any other bill that is delinquent (such as a credit card, car, or house payment). Communicate with the lender to let them know there is a problem. They may be able to help you out by recommending one of the following options:
• Deferment—being placed on deferment means you are given “permission” to not make your payment for “x” amount of time. No interest will be charged on the deferred payments if your loan was subsidized.
• Forbearance—this is similar to deferment in that you don’t have to make a payment, but the interest will accrue even if your loan was subsidized.
• Repayment Plan—if you don’t qualify for a deferment or forbearance, ask if you can reschedule your payment plan. Most repayment plans are predicated on a 10-year time frame, but you may be able to extend it out to 25 years. Your student loan debt must be over $30,000 to qualify for extended repayment.
- Other types of repayment options include:
o Graduated Repayment—the loan time frame is still 10 years but the payments are reset to smaller amounts in the beginning years and higher amounts in the latter years (based on the assumption that you will be earning more money as the years go by).
o Income-based Repayment—your student loan bill is based on your income. You will not pay more than 10% of your income, and many will pay less than that or nothing at all.
If your loan eventually goes into default because of non-payment, the federal government may take punitive action against you. Currently, the federal default rate sits at 8.8%. “Punishment” may include one or all of the following: reporting the default on your credit report, taking your income tax refunds, garnishing your wages, charging high collection fees, and last but not least, revoking your professional license. Remember, there is no statute of limits on federal student loans and you can’t discharge them through bankruptcy.
Written by:
Donna Green
Extension Educator
Family and Consumer Sciences
Ohio State University Extension
